So you’re new to freelancing/entrepreneurship and worried about what do when the taxman comes calling? It’s unavoidable; especially if (like me) you live in a state where any net earnings over $400 requires reporting. Odds are, your client is not taking taxes out of the check they write you, so it’s up to you. When I was starting out there are a few things I wish people would have told me, including:
If you are a sole-proprietor, you don’t necessarily require an Employer Identification Number (EIN), but even so, it makes good sense to have one. Besides not having to distribute your SSN on every form you fill out, it also giving you a more professional appearance. Fortunately the IRS makes it really easy to figure out if you need an EIN
When to file your companies taxes
Self-employed reports and taxes are due at different times than your “regular” income tax. You’ll need to be ready to report and pay on a quarterly basis instead of annual. The IRS has a set schedule and you’re expected to know it. Yes, you have to do this every quarter, even in April when you file income tax from a traditional employer, and you don’t combine the two.
If you have employees
If you’re splitting those checks with other freelancers/employees that help you out they’re responsible for their own taxes but you need to clear about how much they are getting. If you paid someone more than $600, issuing a 1099-Misc form is necessary. And really it doesn’t make sense not to issue them. Some freelancers might try to tell you it’s just easier to handle it “under-the-table,” but doing so leaves you on the hook for their taxes.
Research, research, research
It’s also a bad idea to assume all self-employment tax filings are the same. The rules for a home beeswax candle maker are different for a interior decorator, so while these are meant to be helpful reminders, they are just the beginning of what you should know before submitting that first return.
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